Powerco loses appeal against price controls on pipelines

Tuesday 12th August 2008

Powerco, the gas distributor half-owned by Australia's Babcock & Brown Infrastructure, lost an appeal against government-imposed price controls.

Powerco and Vector had challenged the Commerce Commission's recommendation on price controls that was adopted by the government. The commission in October 2005 ordered Powerco and Vector to reduce average pipeline prices by 9% and 9.5% respectively.

"Without price control, monopolies like Powerco can potentially overcharge consumers," said commission chair Paula Rebstock. "Reducing monopoly profits through lower prices is an obvious and significant benefit to gas consumers."

The decision comes a week after Babcock (BBI) said it may sell its 50% of Powerco after a review started in June to strengthen BBI's balance sheet and free up cash for investments.

BBI stock fell 2.4% to 85 Australian cents on the ASX today and has handed investors a loss of 40% in the past 12 months. Vector rose 1.4% to NZ$2.25 on the NZX.

Powerco is New Zealand's second-largest gas distributor, accounting for about 46% of the nation's gas connections. For Vector, the price controls only affected its Auckland gas network.

BBI, formerly Prime Infrastructure Networks, acquired Powerco four years ago from interests including local government organisations for NZ$680 million.

By Jonathan Underhill

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